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To help balance the state’s budget, the Vermont legislature has voted to suspend a scheduled increase in an obscure corporate tax break known as the “domestic production deduction.” It’s a sensible move. Other states with this tax break should consider freezing it or, better yet, joining the 22 states that have killed it altogether.

Analyzing the new GDP figures issued Friday, which showed state and local spending falling at the fastest rate in three decades, Matt Yglesias made the important point that the large cuts in state and local spending are a drag on the economy. The new figures are just the latest evidence that Congress should extend the Recovery Act’s fiscal relief to states.

Just before midnight last night, Georgia’s legislature voted to eliminate a tax credit for 1 million workers earning under $20,000, joining several other states that are cutting (or considering cutting) tax benefits for low-income families. While states face severe budget pressures due to the recession, sacrificing their low-income tax credits is a terrible idea, for a host of reasons:

Over the past two decades, a number of states have recognized the folly of taxing working-poor families deeper into poverty and, instead, have eliminated their income taxes on poor — and, in some states, near-poor — households. But our new survey finds that 13 of the 42 states with an income tax still tax two-parent families of four with earnings below the poverty line ($21,947).

The New York Times reports that hundreds of thousands of teachers across the country could face layoffs in June, as state revenues remain weak and federal Recovery Act assistance will soon dry up. (The Washington Post has a similar story.)

As Congress considers whether to extend the state fiscal assistance in last year’s Recovery Act, it should keep in mind that without those funds, states will have a very hard time continuing their initiatives to improve their schools.

Education is the single biggest item in state budgets. So when the recession triggered an unprecedented decline in state revenues, it’s not surprising that most states cut education spending to help close their shortfalls.